China import lawU.S. Customs and Border Protection (CBP) just issued new regulations that establish a new administrative procedure for CBP to investigate antidumping (AD) and countervailing duty (CVD) evasion. Importers of any product that could remotely be considered merchandise subject to an AD/CVD order now face an increased likelihood of being investigated for AD/CVD duty evasion. The new CBP AD/CVD duty evasion investigations are the latest legal procedure, together with CBP Section 1592 penalty actions, CBP criminal prosecutions, and “qui tam” actions under the False Claims Act.  aimed at ensnaring US importers and their foreign suppliers in burdensome and time-consuming proceedings that can result in significant financial expense or even criminal charges.

This almost certainly means Chinese goods subject to AD/CVD duties will be facing increased CBP scrutiny, especially given the political pressure and enflamed rhetoric blaming Chinese imports for the downfall of American manufacturing. Now that CBP has been given another legal weapon to shut down AD/CVD duty evasion, importers (and their Chinese suppliers) should assume CBP will be using this weapon and they need to figure out how to stay clear of these investigations or start preparing to defend themselves.

The following are key points from these new regulations:

  • CBP now has a new option to pursue and shut down AD/CVD duty evasion schemes.
  • Other interested parties, including competing importers, can participate in CBP’s investigation and chime in against the accused importers.
  • CBP will have broad discretion to issue questions and conduct on-site verifications.
  • Certain information that would have been submitted under seal in CBP’s old investigations will now be made publicly available in CBP’s new investigations.
  • CBP investigations may result in interim measures that could significantly affect importers.
  • Failure to cooperate and comply with CBP requests may result in CBP applying an adverse inference against the accused party, including a determination that AD/CVD evasion has occurred.

The new CBP regulations establish a formal process for how it will consider allegations AD/CVD evasion. These new regulations are intended to address complaints from US manufacturers that CBP was not doing enough to address AD/CVD evasion schemes and that CBP’S investigations were neither transparent nor effective.

AD/CVD duty evasion schemes typically involve falsely declaring the country of origin or misclassifying the product (e.g., “widget from China” could be misreported as “widget from Malaysia” or “wadget from China”).  A recent GAO report noted that CBP was unable to collect $2.3 billion of AD/CVD duties from 2001-2014, most of which involved subject merchandise from China.

Petitions filed by domestic manufacturers trigger concurrent investigations by the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) to determine whether AD/CVD orders should be issued to impose duties on covered imports. The DOC determines if imports have been dumped or subsidized and calculates the applicable AD/CVD rates.  CBP then has the responsibility to collect AD/CVD duty deposits and to assess the final amount of AD/CVD duties owed at the rates determined by DOC.

US petitioners have decried U.S. Customs and Border Protection (CBP) as the weak link in enforcing US trade laws, not just because of it often being unable to collect the full amount of AD/CVD duties owed, but also because how CBP responds to allegations of AD/CVD evasion. Parties that provided CBP with information regarding evasion schemes were not allowed to participate in CBP’s investigations and were not notified of whether CBP had initiated an investigation or the results of any investigation.

CBP’s new regulations address many complaints regarding CBP’s lack of transparency in handling AD/CVD evasion allegations. The new regulations provide more details on how CBP procedures are to be conducted, the types of information that will be considered and made available to the public, and the specific timelines and deadlines in CBP investigations:

  • “Interested parties” for CBP investigations now includes not just the accused importers, but also competing importers that submit the allegations.
  • Interested parties will be required to submit public versions of confidential Information submitted in CBP’s AD/CVD evasion investigations.
  • After submission and receipt of a properly filed allegation, CBP has 15 business day to determine whether to initiate an investigation and 95 days to notify all interested parties of its decision. If CBP does not proceed with an investigation, CBP has five business days to notify the alleging party of that determination.
  • Within 90 days of initiating an investigation, CBP can impose interim measures if it has a “reasonable suspicion” that the importer used evasion to get products into the U.S.

Many questions remain as to how CBP will apply these regulations to actual investigations.  How exactly will parties participate in CBP investigations and what kind of comments will be accepted?  How much of the information in the investigations will be made public? How is “reasonable suspicion” defined and what kind of evidence will be considered? Is it really the case that accused Importers may be subject to interim measures (within 90 days of initiation) even before they receive notice of an investigation (within 95 days of initiation)?

These new AD/CVD duty evasion regulations further evidence the government’s plans to step up its efforts to enforce US trade laws more effectively. Importers, in turn, must step up their vigilance to avoid being caught in one of these new traps.  Given that a significant portion of the uncollected AD/CVD duties have involved products from China, there is a good chance that US importers and Chinese exporters will be subject to new allegations of AD/CVD duty evasion that may affect their ability to compete in the US market.